Porsche – World’s Most Profitable Carmaker In 2006

Bloomberg reports Porsche AG’s 911,
a $72,400 sports car, spurred the carmaker? being the world’s most profitable
last year. CEO Wendelin Wiedeking says earnings will grow even more because of
Volkswagen AG’s Golf, a $15,000 hatchback.

The report said Wiedeking may extend
the luxury car company’s share-price gains by increasing the stake and using
Porsche’s influence to convert Europe’s biggest carmaker. Analysts and
investors say Porsche’s experience in production will enhance Volkswagen’s
profitability, while the companies will save by sharing development costs.

Sales and profit at Volkswagen, now
31 percent owned by Porsche, have already increased since the initial tie-up,
spurring Porsche’s shares more than double.

Peter Braendle, who helps manage
almost 63 billion Swiss francs ($52 billion) in assets at Swisscanto Asset
Management in Zurich, plus shares in both car companies, said Porsche knows how
to manage itself and stands to significantly earn from its ownership in
Volkswagen.

Adam Jonas, an analyst at Morgan
Stanley in London, forecasts that Porsche’s profit may grow to more than 3
billion euros, which is tantamount to $4.1 billion, in five years from 1.39
billion euros in the 12 months ended July 2006. He expects that the company’s
shares will reach 1,650 euros within a year, as compared with Thursday’s
closing price of 1,330 euros.

Juergen Meyer, who helps manage
almost 1.3 billion euros of assets at SEB Asset Management in Frankfurt,
including Volkswagen and Porsche shares, commented that the alliance between
Porsche and VW is extremely important to Porsche.

As regards lagging profitability,
the report says that such concern on Volkswagen would crimp Porsche’s growth
sent the luxury carmaker’s shares plunging 10 percent on Sept. 26, 2005, a day
after Porsche said that it would acquire a stake in the larger automaker.

In 2005, Wolfsburg, Germany-based
Volkswagen’s operating margin was 3 percent as compared with 19 percent at
Porsche in the 12 months ended July that year.

Volkswagen’s margin widened to 4.3
percent in 2006, as new models such as the Eos and the Audi Q7 helped lift
sales 10 percent to 5.72 million vehicles. Net income increased more than
doubled.

Cost cutting already began at
Volkswagen. As a matter of fact, former Chief Executive Bernd Pischetsrieder
has thrown off 20,000 jobs.

Andreas Dittmer, who helps manage
nearly 3.5 billion euros in assets at Apo Asset Management in Cologne, Germany,
which includes Volkswagen shares, commented that Volkswagen has become
leaner”.

Porsche is entitled to almost one
third of Volkswagen’s dividend, which was 497 million euros in 2006. Wiedeking
said on June 26 that Porsche’s profit will really rise significantly this year.
And thanks to Volkswagen.